Companies
Act, 1956
Important
Terminology
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S. NO.
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ABREVIATION
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STAND FOR
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1
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MCA
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:
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MINISTRY
OF COMPANY AFFAIRS
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2
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ROC
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:
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REGISTRAR
OF COMPANIES
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3
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RD
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:
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REGIONAL
DIRECTOR
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4
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CLB
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:
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COMPANY
LAW BOARD
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5
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NCLT
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:
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NATIONAL
COMPANY LAW TRIBUNAL
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6
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PFO
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:
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PUBLIC
FACILITAION OFFICE
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7
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MD
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:
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MANAGING
DIRECTOR
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8
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WTD
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:
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WHOLE
TIME DIRECTOR
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9
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MGR
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:
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THE
MANAGER
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10
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AGM
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:
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ANNUAL
GENERAL MEETING
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11
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EGM
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EXTRA
ORDINARY GENERAL MEETING
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12
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BM
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:
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BOARD
MEETING
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13
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OR
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ORDINARY
RESOLUTION
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14
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SR
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SPECIAL
RESOLUTION
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15
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UR
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UNANIMOUS
RESOLUTION
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16
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BOD
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:
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BOARD
OF DIRECTOR
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17
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MOA
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MEMORANDUM
OF ASSOCIATION
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18
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AOA
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ARTICLE
OF ASSOCIATION
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19
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CIN
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:
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CORPORATE
IDENTIFICATION NUMBEER
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20
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DIN
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:
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DIRECTOR
IDENTIFICATION NUMBER
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21
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GLN
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:
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GLOBAL
LOCATION NO.
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22
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DCA
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DEPARTMENT
OF COMPANY AFFAIRS
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Schedules
under the Companies Act, 1956
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S. NO.
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SCHEDULES
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PARTICULARS
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1
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TABLE A
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REGULATIONS FOR
MANAGEMENT OF A COMPANY LIMITED BY SHARES INTERPRETATION
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TABLE B
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MEMORANDUM OF
ASSOCIATION OF A COMPANY LIMITED BY SHARES
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TABLE C
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MEMORANDUM AND
ARTICLES OF ASSOCIATION OF A COMPANY
LIMITED BY GUARANTEE AND NOT HAVING A SHARE CAPITAL |
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TABLE D
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MEMORANDUM AND
ARTICLES OF ASSOCIATION OF A COMPANY
LIMITED BY GUARANTEE AND HAVING A SHARE CAPITAL |
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TABLE E
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MEMORANDUM AND
ARTICLES OF ASSOCIATION
OF AN UNLIMITED COMPANY |
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TABLE F
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FORM OF STATEMENT TO
BE PUBLISHED BY LIMITED BANKING COMPANIES, INSURANCE COMPANIES
AND DEPOSIT, PROVIDENT OR BENEFIT SOCIETIES |
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2
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SCHEDULE
IA
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:
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LIST OF RELATIVES
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3
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MATTERS TO BE
SPECIFIED IN PROSPECTUS AND REPORTS TO BE SET OUT THEREIN
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4
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SCHEDULE
III
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:
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FORM OF STATEMENT IN
LIEU OF PROSPECTUS TO BE DELIVERED TO REGISTRAR BY A COMPANY WHICH DOES NOT
ISSUE A PROSPECTUSOR WHICH DOES NOT GO TO
ALLOTMENT ON A PROSPECTUS
ISSUED, AND REPORTS TO BE SET OUT THEREIN
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5
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SCHEDULE
IV
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:
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FORM OF STATEMENT IN
LIEU OF PROSPECTUS TO BE DELIVERED TO REGISTRAR BY A PRIVATE COMPANY ON
BECOMING A PUBLIC COMPANY AND REPORTS TO BE SET OUT THEREIN
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6
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SCHEDULE V
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ANNUAL RETURN
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7
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GENERAL INSTRUCTIONS
FOR PREPARATION OF BALANCE SHEET AND STATEMENT OF PROFIT AND LOSS OF A
COMPANY IN ADDITION TO THE NOTES INCORPORATED ABOVE THE HEADING OF BALANCE
SHEET UNDER PARTS A AND B
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8
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:
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OMMITTED
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9
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:
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FORM OF PROXY
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10
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SCHEDULE X
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:
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TABLE OF FEES TO BE
PAID TO THE REGISTRAR
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11
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:
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FORM IN WHICH SECTIONS
539 TO 544 OF ACT ARE TO APPLY TO CASES WHERE AN APPLICATION IS MADE UNDER
SECTION 397 OR 398
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12
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ENACTMENTS REPEALED
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13
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SCHEDULEXIII
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CONDITIONS TO BE
FULFILLED FOR THE APPOINTMENT OF A MANAGING OR WHOLE-TIME DIRECTOR OR A
MANAGER WITHOUT THE APPROVAL OF THE CENTRAL GOVERNMENT
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14
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:
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RATES OF DEPRECIATION
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15
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SCHEDULE XV
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:
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Companies
Act- 1956
What is a Company
Company is a
voluntary association of persons formed for the purpose of doing business
having a distinct name and limited liability. It is a juristic person having a
separate legal entity distinct from the members who constitute it, capable of
rights and duties of its own and endowed with the potential of perpetual
succession.
According to Prof.
Haney “A company is an artificial person created by law, having separate
entity, with a perpetual succession and common seal”
The Companies act,
1956 does not define a company in terms of its features. As per the provision
of Companies Act, 1956 definition of Company are as follows;
Section 3 (1) (i)
"company" means a company formed and registered under this Act or an
existing company as defined in clause (ii):
(ii)
"existing company" means a company formed and registered under any of
the previous
companies laws
specified below:—
(a) any Act or
Acts relating to companies in force before the Indian Companies Act, 1866 (10
of
1866) and repealed
by that Act;
(b) the Indian
Companies Act, 1866 (1006 1966);
(c) the Indian
Companies Act, 1882 ( 6 of 1882);
(d) the Indian
Companies Act, 1913 (7 of 1913);
(e) the
Registration of Transferred Companies Ordinance, 1942 (54 of 1942); and
(f) any law
corresponding to any of the Act or the Ordinance aforesaid and in force in the
merged territories or in a Part B Sate,
or any part thereof, before the extension thereto of the Indian
Companies Act, 1913( 7 of 1913);
on the basis of
above definition of Companies Act, 1956 'company' includes company formed and
registered under the Act or an existing company i.e. a company formed or
registered under any of the previous company laws.
However, company
is not a citizen so as to claim fundamental rights granted to citizens. [Tata
Locomotive Engineering & Locomotive Co. Ltd. v State of Bihar]
On the basis of
above definitions a Company to which the Companies Act applies comes into
existence only when it is registered under the Act. On registration, a company
becomes a body corporate, i.e. it acquires a legal personality of its own,
separate and distinct from its members. A registered Company is therefore
created by law and law alone can regulate, modify of dissolve it.
CHARACTERSTICS
OF A COMPANY
On the basis of
above explanation and definition of a company Characterstics of a company are
as follows:
1.
Incorporated
Association
2.
Separate
Legal Entity
3.
Artificial
Person
4.
Limited
liability
5.
Transferability
of Shares
6.
Perpetual
succession
7.
Common
seal
Incorporated
Association
By
incorporation under the
Act, the company
is vested with
a corporate personality quite
distinct from individuals
who are its
members.
Separate
Legal Entity
Being a
separate legal entity it bears its own name and acts under a corporate
name. It has a seal of its own. Its assets
are separate and
distinct from those
of its members.
It is also
a different =person‘ from the
members who compose it. As such it is capable of owning property, incurring
debts, borrowing money,
having a bank
account, employing people, entering
into contracts and
suing or being
sued in the
same manner as an individual. Its members are its owners but
they can be its creditors simultaneously
as it has a separate legal entity. A shareholder cannot be held liable
for the acts of the company even if he holds virtually the entire share
capital. The shareholders are not the
agents of the
company and so
they cannot bind
it by their
acts.
The
company does not hold its property as an agent or trustee for its members and
they cannot sue
to enforce
its rights, nor
can they be
sued in respect
of its liabilities.
Thus, =incorporation‘ is the act of forming a legal
corporation as a
juristic person. A
juristic person is in
law also conferred
with rights and
obligations and is
dealt with in accordance
with law. In other
words, the entity
acts like a
natural person but
only through a designated
person, whose acts
are processed within
the ambit of law
[Shiromani Gurdwara Prabandhak Committee v. Shri Sam Nath Dass AIR 2000 SCW
139].
The case of Salomon v.
Salomon and Co. Ltd.,
(1897) A.C. 22, has
clearly established the principle
that once a
company has been
validly constituted under the
Companies Act, 1956
it becomes a
legal person distinct
from its members and for this purpose it is immaterial whether any member has a
large or small proportion
of the shares,
and whether he
holds those shares beneficially or as a mere trustee.
In the case,
Salomon had, for
some years, carried
on a prosperous business as
a leather merchant
and boot manufacturer.
He formed a
limited company consisting
of himself, his wife, his daughter and his four sons as
the shareholders, all of whom subscribed for 1 share each so that the
actual cash paid as capital
was £ 7.
Salomon sold his business
(which was perfectly
solvent at that time),
to the Company
for the sum of
£ 38,782. The company‘s nominal capital
was £ 40,000
in £ 1
shares. In part payment of the
purchase money for the
business sold to
the company, debentures
of the amount
of £10,000 secured by a
floating charge on the
company‘s assets were issued
to Salomon, who also
applied for and
received an allotment
of 20,000 £
1 fully paid shares.
The remaining amount
of £8,782 was
paid to Salomon
in cash. Salomon was the managing
director and two of his sons were other directors.
The company soon ran into difficulties and the debentureholders
appointed a receiver and
the company went
into liquidation. The total assets of the company amounted
to £6050, its
liabilities were £10,000
secured by debentures, £8,000
owning to unsecured
trade creditors, who
claimed the whole of
the company‘s assets,
viz., £6,050, on
the ground that,
as the
company was a mere
=alias‘ or agent
for Salomon, they
were entitled to payment
of their debts
in priority to
debentures. They further pleaded that Salomon, as
principal beneficiary, was
ultimately responsible for
the debts incurred by his agent
or trustee on his behalf. The trial judge and the Appellate Court agreed
with these contentions and
decreed against Salomon. The
House of Lords disagreeing with
the lower Courts, repudiated
these contentions and
accepted the appeal and reversed the order of the Appellate Court. The House of Lords
held that on
registration, the company
comes into existence
and attains maturity on
its birth. There is no
period of minority,
no interval of incapacity. It has its own existence or
personality separate and distinct from its members and, as a result, a shareholder cannot be held liable for its acts even though he
holds virtually the
entire share capital.
Thus, the case also
established the legality of
what is known
as one man company . The case also recognised that
subscribers do not have to be independent or strangers to one another. The case also recognised
the principle of
limited liability. It also established that a person can be at the same time a member, a creditor and an employee of the
company, as well as its director.
Their Lordships of the House of Lords observed:
When the memorandum
is duly signed
and registered, though
there be only seven
shares taken, the
subscribers are a
body corporate capable forthwith of
exercising all the
functions of an
incorporated company. It is difficult
to understand how a
body corporate thus
created by statute
can lose its individuality by
issuing the bulk of its capital to one person. The company is
at law a different person altogether
from the subscribers of the
memorandum; and though it
may be that
after incorporation the
business is precisely
the same as before, the same persons are
managers, and the same hands
receive the profits, the company is not
in law their agent or trustee. The statute enacts nothing
as to the extent or degree of interest
which may be held by each of the seven or as
to the proportion
of interest, or
influence possessed by one or majority
of the shareholders
over others. There is nothing in the Act
requiring
that the subscribers
to the memorandum
should be independent
or unconnected, or that
they or any
of them should take a
substantial interest in the undertakings, or
that they should have a
mind or will of
their own, or that there
should be anything
like a balance
of power in
the constitution of company.
The
decision of the Calcutta High Court in Re. Kondoli Tea Co. Ltd., (1886) ILR 13
Cal. 43, recognised
the principle of separate legal
entity even much
earlier than the decision in
Salomon v. Salomon &
Co. Ltd. case. Certain persons transferred
a Tea Estate to
a company and c
laimed ex emptions from
ad valorem duty
on the ground that they
themselves were the shareholders in
the company and, therefore, it was nothing
but a transfer
from them in
one name to
themselves under another name.
While rejecting this
the Calcutta High
Court observed: The
company was a separate
person, a separate body
altogether from the shareholders
and the transfer was as
much a conveyance,
a transfer of
the property, as
if the shareholders
had been totally different persons.
Artificial
Person
A company
being a artificial legal
person and entirely
distinct from its
members, is capable of owning,
enjoying and disposing of property in its own name. The company is the
real person in
which all its
property is vested,
and by which
it is controlled, managed and disposed of. Their
Lordships of the Madras High Court in R.F. Perumal , A.I.R. 1960 Mad. 43 held
that n v. H. John Deavin o member can
claim himself to be the owner of
the company‘s property
during its existence
or in its
winding
up . A member
does not even have an insurable
interest in the property of
the company. A person, for
example, was the holder of
nearly all the
shares except one of
a timber company and was also a
substantial creditor. He insured the company‘s timber in his own name. The
timber, having been
destroyed by fire,
the insurance company
was held not liable to him. [See Macaura v. Northern Ass urance Co.
Ltd., 1925 A.C. 619]. Lord Buckmaster observed in this case that No shareholder has any right to any item of
property owned by the company, for
he has no legal or equitable
interest therein . [Gramophone
and Typewriter Co. v. Stanley, (1906) 2 K.B. 856 at 869].
In other
words, the property
of the company is not the property
of the individual members. As stated by the Supreme Court, a
shareholder has merely an
interest in the company arising under the Articles of Association,
meas ured by a sum of money for the
purpose of liability,
and by a
share in the
profit. He has merely a
right to participate in the profits of
the company subject to the contract contained in articles of association (R.C.
Cooper v. Union of India, A.I.R. 1970 S.C. 564). In another case the
Supreme Court held
that, though the
income of a
tea company is
entitled to be exempted
from Income-tax up
to 60% being
partly agricultural, the
same income when received
by a shareholder
in the form
of dividend cannot
be regarded as agricultural income
for the assessment
of income-tax. [See Mrs. Bacha F. Guzdar v.
The Commiss ioner of
Income Tax, Bombay,
A.I.R. 1955 S.C.
74]. It was
also observed by the
Supreme Court that
a shareholder does
not, as is
erroneously believed by some people, become the part owner of the
company or its property; he is only
given certain rights by law, e.g., to receive or to attend or vote at the
meetings of the shareholders. The court
refused to identify the shareholders with the company and reiterated the
distinct personality of the company.
Limited Liability
Limited
liability means the status of being legally responsible only to a limited
amount for debt of a company. The company, being a separate person, is the owner of its assets and bound by its liabilities.
The liability of a member
as shareholder, extends
to contribution to the
assets of the company up
to the nominal value of the
shares held and not paid
by him. Members,
even as a
whole, are neither
the owners of the
company‘s undertak ings, nor
liable for its
debts. In other
words , a shareholder
is liable to pay the balance, if
any, due on the shares held by him, when called upon to pay
and nothing more, even if the liabilities of the company far exceed its assets.
This means that the liability of a
member is limited.
For example, if A holds
shares of the total nominal value
of Rs. 1,000 and has already paid Rs. 500/- (or 50% of the value) as part
payment at the time of allotment, he cannot be
called upon to pay more than Rs. 500/-, the amount remaining unpaid on
his shares. If he holds
fully -paid shares, he has no
further liability to pay even if the company is declared insolvent. In the case
of a
company limited by guarantee,
the liability of
members is limited
to a specified amount mentioned in the memorandum.
In the
case of unincorporated associations
like partnership firms,
the liability of the
partners for the debts of the
business is unlimited. Not only their
share in the firm but their personal
assets may be attached to satisfy the
debts and liability of the firm.
Transferability of Shares
The
capital of a company is divided into parts, called s hares. The shares are said
to be movable property
and, subject to certain
conditions, freely transferable,
so that no shareholder is
permanently or necessarily wedded
to a c ompany. When the joint stock
companies were established,
the object was
that their shares
should be capable of being easily transferred, [In Re.
Balia and San Francisco Rly.,
(1968) L.R. 3 Q.B. 588].
Section 82 of
the Companies Act,
1956 enunciates the
principle by providing that
the shares held
by the members
are movable property
and can be transferred from one
person to another in the manner provided by the
articles. If the articles do
not provide anything
for the transfer
of shares and
the Regulations containedion
Table A
in Schedule I to the Companies
Act, 1956, are also expressly
excluded, the
transfer of shares
will be governed
by the general
law relating to transfer of movable property. A member
may sell his
shares in the
open market and
realise the money
invested
by him.
Perpetual Succession
An incorporated
company never dies
except when it
is wound up
as per law. A company, being
a separate legal
person is unaffected by
death or departure
of any member and
remains the same
entity, despite total
change in the
membership. A company‘s life is determined
by the terms of its
Memorandum of Association. It may
be perpetual or it may continue for a specified time to carry on a task or
object as laid down in
the Memorandum of
Association. Perpetual succession,
therefore, means that the
membership of a
company may k eep
changing from time
to time, but
that does not affect its continuity. But a partnership firm, on the
other hand, is affected by the
death or incapacity
of its partners.
A company is
independent of the
lives of its members as a natural consequence of
incorporation and transferability of its shares. The membership
of an incorporated
company may change
either because one shareholder has transferred his shares to
another or his shares devolve on his legal
representatives on
his death or
he ceas es to
be a member
under some other provisions of the Companies Act. Thus, perpetual succession denotes the ability of a company
to maintain its existence by the constant succession of new individuals who step into the
shoes of those
who cease to
be members of
the company. Professor L.C.B. Gower rightly mentions, Members may come and go, but the company can
go on forever. During the war all the
members of one private company, while in
general meeting, were killed
by a bomb,
but the company
survived
not even
a hydrogen bomb could have
destroyed it .
(vi) Common Seal
On
incorporation, a company acquires legal entity with perpetual succession and a common seal. Since the
company has no physical existence, it must act through its agents and all such
contracts entered into by its agents must be under the seal of the company. The
common seal of the company
is of very great
importance. It acts as the
officialsignature of a company. The name of the company must be engraved
on its common seal.
A rubber stamp
does not serve
the purpose. A document not bearing common seal of the
company is not authentic and has
no legal force behind it. The person
authorised to use
the seal should
ensure that it
is kept under
his personal custody and
is used very
carefully because any
deed, instrument or a document
to which seal is improperly or
fraudulently affixed will involve
the company in legal action and
litigation.
As
per the DCA Clarification the common seal of the company should be of Metal.
COMPANY AS DISTINGUISHED FROM OTHER BUSINESS ENTERPRISES
Though
there are a number of similarities between a limited company and other forms
of associations, there are a great number of
dissimilarities as well. In both
the cases individuals are the s ubjects, and trading is generally the object.
In the following paragraphs, a limited
company is distinguished from a partnership firm, a Hindu Joint family business and a registered
society.
Distinction between Company and Partnership
The
principal points of distinction between a company and a partnership firm, are as
follows:
(1) A
company is a
distinct legal person. A partnership firm is not
distinct from the several persons who
compos e it.
(2) In
a partnership, the
property of the
firm is the property of
the individuals comprising it.
In a company,
it belongs to
the company and
not to the individuals comprising it.
(3) Creditors
of a partnership
firm are creditors
of individual partners
and a decree against
the firm can be executed
against the partners
jointly and severally. The
creditors of a
company can proceed
only against the company and not against its members.
(4) Partners
are the agents of the
firm, but members of a company
are not its agents. A partner can
dispose of the property and
incur liabilities as long as he acts in the course of the firm‘s
business. A member of a company has no such power.
(5) A
partner cannot contract
with his firm,
whereas a member
of a company can.
(6) A
partner cannot transfer
his share and
make the transferee
a member of the
firm without the
consent of the
other partners, whereas
a company‘s share can ordinarily
be transferred.
(7)
Restrictions on a partner‘s authority contained
in the partnership contract do not bind
outsiders; whereas such restrictions incorporated in the
Articles are effective, because the public are bound to acquaint themselves
with them. A partner‘s liability
is always unlimited
whereas that of shareholder may be
(8)
limited either by shares or a guarantee.
(9) A
company has perpetual
succession, i.e. the
death or insolvency
of a shareholder or all
of them does not
affect the life of the
company, whereas the death or
insolvency of a
partner dissolves the
firm, unless otherwise provided.
(10) A
company may have
any number of
members except in the case
of a private company
which cannot have
more than fifty
members (exc luding past and
present employee members). In a public company there must not be
less than seven persons and
in a private company not less
than two. On the other hand,
a partnership firm
cannot have more
than 20 members
in any business and 10 in the cas
e of banking business.
(11) A
company is legally
required to have
its accounts audited
annually by a chartered
accountant, whereas the
accounts of a
firm are audited
at the discretion
of the partners.
(12) A company, being a creation of law, can
only be
dissolved as laid
down by law. A partnership firm, on the other hand, is the result of an
agreement and can be dissolved at any time by agreement.
Lifting of
the Corporate Veil
The basic principle, that the company is a
distinct legal entity from its members, is regarded as a curtain or a veil
between the company and its members. This 'corporate veil' protects the members
from the liability of the company. When we look at the economic reality of the
situation, the 'corporate veil' is said to have been lifted in certain
circumstances.
As a matter of rule, the corporate veil cannot
be lifted to see the identity of the persons behind it except in a few
exceptional circumstances/situations, which have developed over a period of
time through judicial pronouncements. These are:—
(i) to
determine whether, it is an enemy company;
(ii) if it is used for evasion or to circumvent tax
obligation;
(iii)
when it is formed to defeat or circumvent law or defraud creditors or to avoid
legal obligations; (iv) where the companies are in relationship of
holding and subsidiary companies;
(v)
the laws relating to foreign exchange control have been violated; (vi) a
shareholder has lost the privilege of limited liability;
(vii) where the sole responsible person is the
dependent himself;
(viii) by implying in certain cases that the
company is an agent or the trustee of its members;
(ix)
where a particular director could be proceeded against in pursuance of the
impugned show cause notice or where he is liable for the payment of all duties
charged and to all penalties;
(x) where the corporate entity is used for a
fraudulent purpose;
(xi) where the corporate shield was blatantly
used to disobey the orders of the Court willfully.
